Orange County residents with high incomes are more likely to itemize their tax deductions and to be targeted by an IRS audit. The IRS is more likely to scrutinize the deductions that a high-income earner takes and the failure to provide supporting documentation for a deduction can get a taxpayer into serious legal trouble.
An experienced tax law attorney can help high-income individuals establish a proper tax plan that can reduce the chance of an audit and be honored if an audit does occur. A proper tax plan may include deductions that reduce a person's overall taxable income, but any such deductions should be properly supported to avoid the risk of penalties.
The IRS recently released a list of tax saving tips that Orange County residents should consider. The tips include the following suggestions:
Make charitable contributions. Donations that are made to qualifying charities before Dec. 31 are deductable for this year. This includes donations made by credit card if the card is charged by Dec. 31, regardless of when the bill is paid.
Install energy-saving and green-energy home improvements. Up to $500 in tax savings are available to Californians and additional tax benefits are available from the Residential Energy Efficient Property Credit.
Make investment portfolio adjustments. It's not too late to sell stocks. Normally, losses from stocks are deductable up to the amount of stock gains made during the year. If your portfolio had a particularly bad year you can also apply $3,000 of stock losses to other income. Losses above the $3,000 amount can be carried forward for future years.
We will cover additional last-minute tax saving tips in our next post.
Source: Internal Revenue Service, "Six Year-End Tips to Reduce 2011 Taxes," Special Edition Tax Tip 2011-09, Dec. 21, 2011